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Testing for Stochastic Dominance with Diversification Possibilities

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Author Info
Post, G.T. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
Abstract

We derive empirical tests for stochastic dominance that allow for diversification between choice alternatives. The tests can be computed using straightforward linear programming. Bootstrapping techniques and asymptotic distribution theory can approximate the sampling properties of the test results and allow for statistical inference. Our results could provide a stimulus to the further proliferation of stochastic dominance for the problem of portfolio selection and evaluation (as well as other choice problems under uncertainty that involve diversification possibilities). An empirical application for US stock market data illustrates our approach.

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Publisher Info
Paper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam. in its series Research Paper with number ERS-2001-38-F&A Revision_Date: 2009-10-26.

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Date of creation: 01 Nov 2001
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Handle: RePEc:dgr:eureri:2001117

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Related research
Keywords: stochastic dominance; portfolio diversification; linear programming; portfolio selection; portfolio evaluation;

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. V.-P. Heikkinen & & Timo Kuosmanen, 2002. "Stochastic Dominance Portfolio Analysis of Forestry Assets," Finance 0210002, EconWPA. [Downloadable!]
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